For-Profit Colleges Oppose Student-Loan Debt Settlement

The proposed settlement of the class action lawsuit Sweet v. Cardona would erase $6 billion in federal student loan debt for 200,000 defrauded borrowers.
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  • Less than a month ago, a settlement agreement promised automatic debt relief for many student loan holders.
  • That settlement, however, has yet to be finalized by a judge.
  • For-profit colleges argue their due process rights would be abandoned if former students of certain schools were granted automatic relief.

Colleges accused of defrauding students may derail the settlement of a class-action lawsuit that would grant automatic student debt relief to some 200,000 borrowers.

President Joe Biden's Department of Education (ED) and the Project on Predatory Student Lending late last month announced a settlement in Sweet v. Cardona that would cancel debt for more than 200,000 borrowers who claimed they were defrauded by colleges and have pending borrower defense claims. The department would decide another 64,000 pending claims "using standards favorable to the borrowers," according to the settlement.

A handful of colleges and universities listed in that settlement — colleges whose former students would get automatic relief if they filed a borrower defense claim — say in a new legal filing that the proposed settlement circumvents their due process rights.

Last Wednesday, for-profit schools American National University and Lincoln Educational Services Corp. filed a joint motion to intervene in the case. The for-profit advocacy group Career Education Colleges and Universities (CECU) is backing the effort. Meanwhile, nonprofit schools Everglades University and the Chicago School of Professional Psychology have filed separate motions to intervene.

If successful, the joint motion would allow the schools listed in the settlement to join the case as new third parties, likely spelling an end for the agreed-upon settlement.

Here's What For-Profit Schools Want

Nicholas Kent, chief policy officer at CECU, told BestColleges the motion is a matter of protecting due process rights for institutions, as well as the reputations of the schools involved.

"In part, the department is circumventing the borrower defense process by grouping these schools together and suggesting they engaged in fraud," he said. "We believe there should be an avenue for borrowers to have their claims reviewed in a timely way… but we are concerned that the settlement agreement circumvented all of the department's own regulations."

Under the standard borrower defense process, schools with claims filed against them would have a chance to respond and refute those claims. But the automatic relief proposed in the Sweet vs. Cardona case would not afford schools this right, Kent said.

That could lead to — and may have already caused — reputational harm for the over 150 schools listed in the settlement proposal, according to the motion to intervene.

Kent added that some for-profit schools on that list didn't even know they had borrower defense claims filed against them.

"That list suggests the schools have engaged in conduct that may be unlawful," he said.

Additionally, CECU worries there may be downstream effects of this wholesale forgiveness.

Kent said it's unclear whether ED may try to recoup discharged loans from these institutions. Automatic approval of these claims could also be used against these schools in future borrower defense claims or legal actions from state attorneys general against the listed schools, even if fraud was not found.

What's Next in Sweet V. Cardona Settlement?

A settlement hearing for the proposal put forth by ED and the Project on Predatory Student Lending is scheduled for July 28.

Kent of CECU hopes the motion to intervene filed by American National University and Lincoln Educational Services Corp. is either approved before then, or the court delays the settlement hearing. With three similar motions filed within 48 hours of one another, the court may need more time to decide on those motions, especially if more motions are filed in the coming days and weeks.

However, if the court declines the CECU-backed motion, he said further legal action may be in line.

"If we are not successful… then there is always an opportunity to appeal," Kent said. "We are definitely entertaining that as an option should we need it, but we hope we don't."

Most schools identified in the settlement and accused of defrauding student borrowers were for-profit colleges. Historically, the overwhelming majority of borrower defense claims are filed against for-profit colleges. A 2017 analysis from the Century Foundation found that of over 98,000 borrower defense claims studied, nearly 99% of claims were made against for-profit schools.